What Was The Ultimate Cause Of JP Morgan's Big Derivative Bust? The Shocker - Ben Bernanke!!!

S&P and Fitch finally downgrade JP Morgan, 3 years after my initial multimedia warnings (see Listen Carefully... for the details). Unfortunately, despite threats and ruminations, these rating agencies again act in retrospect, failing to do anything but remind stakeholders of the losses they have already taken rather than assisting them in avoiding losses.

So, what are the rating agencies missing? They're missing the fact that nearly all of the big money center banks are doing exactly what JPM was doing and they have no one to rely upon but themselves when things go awry from a counterparty perspective. Bennie Bernanke has instituted perpetual ZIRP, and as such has basically broken the banking business in his attempt to save it. Through ZIRP, banks simply cannot make money doing things that traditional banks do, ex. profit from lending. As such, they reach for yield, and that's just the conservative ones. The big boys take baseball bats swinging for home runs, either consciously or subconsciously sanguine in the protection of the Bernanke flavored taxpayer put under their respective businesses. With such protection, already historically proven, bank managers are getting progressively more aggressive and increasingly less aware of the term "RISK adjusted reward" as they simply seek rewards. Alas, I'm getting ahead of myself, let me explain...

The JPM prop desk that held the losses which generated headlines earlier this week was marketed as a hedging operation when we all know it was anything but. What it was was a concerted grasp for yield and profit in a ZIRP environment where JPM (one of the world's largest congregations of interest bearing assets) was bearing effectively no interest.

Banks need to make money too, hence when there's no money to be made in traditional FI yields, the banks start reaching, and they tend to start reaching farther as desperation to make the next quarter mounts in the face of BoomBustBlog reading investors who may be able to see past earnings stuffing stemming from less than prudent reserve releases consistent underprovisioning.

The BoomBustBlog subscriber document JPM Q1 2011 Review & Analysis illustrates the point of JPM's waning ability to make money by making loans and holding debt with perfect clarity, and did so a year in advance....

So, what do you do if you're a bank but you can't make money lending? You gamble, that's what you do! It's not like JPM hasn't gambled before, and it's not like they haven't lost money gambling...

I put out what I consider to be some of the best predictive research available. I also put an inordinate amount of info out for absolutely free, particularly in the case of those big names as in the employer of Voldemort. For those who have not read my seminal piece on Dimon's house of Morgan, JPM Public Excerpt of Forensic Analysis Subscription published nearly three years ago, allow me to take the liberty to excerpt it for you...

The next post on this topic will outline and illustrate several banks whom the agencies need to downgrade NOW, as in RIGHT NOW. These banks are, of course, JPM counterparties. In the meantime and in between time, follow me:

Here's a subscription dump of our archives for JPM to placate the insatiable thirst of the BoomBustBlog paid subscriber:

So in essence these banks and financial systems are getting almost nothing in interest for the billions they invested. So to make money they have to make riskier and riskier bets in order to make a profit. And if made wrong then they are stuck with that error and they either double down and hope for a win and then some or they double down and lose more without a way to pay it back.

If you're still doing your retail banking with JPM/Chase, wake the fuck up and move your money to a regional, local bank, or a credit union. That's an easy step and a tiny way to punish these arrogant nihilists.

If you're still doing your retail banking with JPM/Chase, wake the fuck up and move your money to a regional, local bank, or a credit union. That's an easy step and a tiny way to punish these arrogant nihilists.

BTW I liked an article I read awhile back when the big boys proclaimed that they were upset because the retail investor was gone and that "the retail investor is our bread and butter". That should tell you everything you need to know to stay out of the market unless you are a good t/a trader.

We'll have to see where the bounce comes in, currently an H&S formation is playing out. I won't be surprised to see a huge influx of "horseshit fabricated goody good better than good" news coming soon. Question is can they get this POS to a new high? I mean afterall this is just a healthy correction lmfao.

This would be original if it wasn't simply the Endgame of what has been happening for >20 years. Banks have been increasing Risk in terms of "picking up nickels in front of steamrollers" and trying to score off the Yield Curve by Leverage. This goes back to Wasserstein-Perella at First Boston. The pyramid was in Corporate Finance manufacturing products for Junk Bonds to be traded. The financialization of the US Corporate Sector was the beginning of this Pyramid and it was the need to feed Bond Traders with new flavours that corrupted the whole system - Drexel, LBOs, Asset Stripping - the works.

This is the Destruction of Western Capitalism nothing less. The future is State Control - the issue is simply who controls The State ?

Well, except for the fiction that any sort of business is trying to be "saved." It doesn't take a genius to realize that ZIRP4EVA is the end of ALL financial businesses that rely on interest revenue.

Once one realizes that even entities such as JPM are still merely abstract shells, the game of wealth transfer takes on much larger dimensions. All others will eventually follow suit with only the CBs (along with BIS/IMF/Worldbank) left standing at the end.

Remember, the easiest way to alter a system is to destroy it's ability to function, then allow TINA to provide the only tolerable solution.

Very good stuff Reggie. Professional analysis that is understandable to the layman who may still operate with a tendency to rational thought and common sense.

Sometimes modern banking makes this tendency a liabilty to grasping what the hell these guys are doing. The tower of JPM's derivitave exposure is truely a sphincter tightening mountain of fail waiting to happen that will infect everybody with paper assets globally.

Your ZIRP take makes sense out of what seems to be irrational behavior by the biggies.

I, and many others here at ZH, appreciate your sharing your work here.

Reggie - Thank you. You back up what you say with relevant data and insightful analysis. The contrast between your predictive analyses warnings about the horses getting rambunctious in the barn vs the rating agencies counting the horses after they flee the barn is priceless.

But key point: it's not the just the data or the analysis. It's that you have the balls to make the calls!

JP Morgan as a Federal Reserve shareholder, Bernanke's loyalty having three stakeholders goes first of all to its shareholders, largely before addressing the interests of the US citizens or government.

That statement really goes to show who the country's rulers are. It's not the Congress or the POTUS; it's the Fed Reserve and it's Board of Directors, who are filled with crinimals like Dimon whose only allegiance is to himself, not his country.

JPM is the problem, downgraded by Fitch and S&P with outlook negative, but still able to get free money from the FED. I want to be a primary dealer, I have excellent credit... Seriously, we are so doomed!